2007 BCSC 54 The Canada Trust Company v. Shaver

Before: The Honourable Madam Justice H. Holmes

Reasons for Judgment

Counsel for the Petitioner:	R. Davies, Q.C. Michelle Isaak
Counsel for the Respondent, John Elwick:	A.S. MacKay
Counsel for the Respondents, Gerald Shaver, Aubrey Ketch, and Barbara Ketch:	J. Craddock
Date and Place of Trial/Hearing:	August 14, 15, 17, 2006
	Vancouver, B.C.

INTRODUCTION

[1] Benjamin John Mott in his will created a trust and gave portions of its annual income to two long-term employees and a friend for the duration of their lives, and to the Salvation Army in Kelowna in perpetuity. The petitioner Canada Trust Company, as trustee of that and another trust, asks numerous questions concerning the construction of the will, and seeks declarations as to whether the trust, or certain of its terms, is invalid for offending either or both of the rule against inalienability of property and the rule against accumulations.

[2] It is common ground that if all or any portion of the trust fails, the property concerned devolves to Mr. Mott’s intestate successors. John Elwick has been appointed as the representative of Mr. Mott’s intestate successors, known or otherwise. At present, only two intestate successors are known; they are the two adult children, living in England, of Mr. Mott’s cousin. They are aware of this proceeding but have taken no active part themselves.

[3] For the reasons that follow, I conclude that, on a proper construction of the will, the trust is certain in its terms, and is not invalid by the rule against inalienability. It would offend that rule except that the trust is as a whole charitable, despite the non-charitable lifetime gifts to individuals, and therefore falls within the established exception to the rule.

[4] The direction to accumulate at least 40% of the trust’s annual income in perpetuity offends the rule against accumulations in s. 25(1) of the Perpetuity Act. The petitioner asks the court to exercise its cy-près jurisdiction to direct a scheme for the non-accumulative use for charitable purposes of the income “released” from the invalid direction to accumulate, and proposes a detailed scheme. However, for the reasons below, I do not agree that there exists here an appropriate basis for the exercise of this jurisdiction: the charitable trust is intended to benefit the Kelowna Salvation Army specifically, and not a broader charitable purpose that may be achieved cy-près; and, its problem is of validity, not impracticability.

[5] A separate trust under the will that includes a monetary gift to Mr. Mott’s cousin gives rise to further, unrelated questions in the petition. The parties agree to adjourn consideration of those questions until after these reasons are issued.

BACKGROUND TO THE WILL

[6] Mr. Mott died on April 5, 2004. He executed his will on March 16, 2004. He was never married, and had no children.

[7] Mr. Mott had run a successful building supply business in Vancouver until his retirement approximately twenty years before his death. He then moved to Kelowna and, evidently being a vigorous person, started a similar business there as a retirement project. Two of the three individuals intended to receive gifts of income from the trust in issue here were long-time employees in the Kelowna business: Gerald Shaver was the overall manager, who also stayed overnight in a suite on the premises, and Aubrey Ketch was the yard manager.

[8] Mr. Shaver and Mr. Ketch survived Mr. Mott and are now 66 and 62 years of age, respectively. Barbara Ketch, Mr. Ketch’s wife, to whom Mr. Ketch’s income payments under the trust would go after Mr. Ketch’s death, is 59 years of age.

[9] Max Zander, the third individual intended to receive income from the trust, was a friend of Mr. Mott’s. Mr. Zander outlived Mr. Mott, but only by four months. After the parties made their submissions, I was advised that his personal representative was recently notified of this proceeding and of the parties’ positions, and did not wish to make submissions to the court.

[10] The will was admitted to probate on January 17, 2005.

[11] Mr. Mott’s home has been sold and his goods and personal effects valued. The assets of the estate are valued at a total of approximately $4,033,000; debts and liabilities are approximately $5,000.

[12] The will gave Mr. Shaver, who was also appointed as executor for the will, the right to live in Mr. Mott’s home for life, but Mr. Shaver has declined that gift. As I mentioned earlier, the will also made a monetary gift, through another trust, to Mr. Mott’s cousin in England or the cousin’s issue per stirpes; the amount of that gift may be in question because of typographical inconsistency in the will, but by any interpretation would not exceed $100,000. The will made no other gifts of any substance except those made through the trust in issue here. Accordingly, most of Mr. Mott’s estate will devolve according to the determinations made in response to this petition in relation to the trust, which the will creates in paragraph 11.

[13] The full text of paragraph 11 is attached as Appendix A to these reasons.

[14] In brief, paragraph 11 appoints the petitioner as trustee to hold the capital of the trust in perpetuity, and provides for gifts of up to 60% in total of the trust’s annual income to the three individuals for life and to the Salvation Army in perpetuity. Of that 60%, the three individuals are to receive 35%, 20%, and 2.5% respectively for their lives, and the Salvation Army is to receive 2.5%. On the death of an individual, the Salvation Army is from then on to receive that person’s share.

[15] The will makes no disposition of the beneficial interest in the capital of the paragraph 11 trust.

THE ISSUES

[16] The numerous and detailed questions raised by the petition require consideration of the following matters in relation to paragraph 11:

1. some threshold issues of interpretation of the will, namely

(a) is the petitioner appointed as trustee of only the residue of the estate or, rather, of the entire estate? and

(b) is the “Benjamin Mott Trust” the same trust as the “Mott Trust”?

2. whether the trust (or part of it) is invalid as contrary to the rule against inalienability of property

3. whether the Salvation Army is to receive its gifts of income to fund its own charitable activities or, rather, to fund the activities of other charitable organizations, and

4. whether the direction to accumulate income is invalid as contrary to the rule against accumulations, and, if it is invalid, whether the court should exercise its cy-près jurisdiction to deal with the released income.

[17] The discussion that follows is intended to answer the questions (other than those agreed to be adjourned) raised by the petition, but without proceeding through the petition’s questions in sequence. If the parties require further clarification as to how the conclusions in the following discussion apply to a particular question in the petition, they have liberty to apply.

[18] I will address each of the above main matters in turn.

1. Threshold Issues of Interpretation

(a) Is the Petitioner Appointed as Trustee of only the Residue of the Estate?

[19] Paragraph 11, which creates the trust in issue, follows directly (with paragraphs 9 and 10) from paragraph 8, which reads in full as follows:

8. I direct my Trustee [Mr. Shaver] to give the property and assets comprising my Estate to [the petitioner] Canada Trust to hold in trust on the following terms: [sic – punctuation]

After the gifts in paragraphs 9 and 10, paragraph 11 directs the petitioner to hold “the remainder of my property and assets” in the trust here in issue on the terms and conditions then set out. That “remainder” given through paragraph 11 is therefore a subset of “the property and assets comprising my Estate” to be given by the trustee to the petitioner according to paragraph 8.

[20] The petitioner seeks the court’s guidance as to whether paragraph 8 (and therefore the trust in paragraph 11) refer to only the residue of the estate after separate gifts to Mr. Shaver, or, rather, to the entirety of Mr. Mott’s estate, including the property purportedly given to Mr. Shaver according to earlier provisions in the will. In particular, the petitioner is concerned that the direction to the trustee in paragraph 8 (from which paragraph 11 follows) to give to the petitioner to hold in trust “the property and assets comprising my Estate” may be inconsistent with the previous gift (in paragraph 7) to Mr. Shaver personally of personal effects, household goods, and vehicles. That is because “Estate” is defined in paragraph 5 to mean “all my property wherever located”.

[21] If there is inconsistency in the literal language of this area of the will, it is superseded by the clear intent expressed by the will as a whole to provide for the payment of debts and to bequeath certain specific items before creating the long-term trust in paragraph 11.

[22] I therefore agree with the petitioner’s undisputed position that, properly construed, paragraph 8 directs Canada Trust to hold the residue of Mr. Mott’s estate, after the gift to Mr. Shaver in paragraph 7.

[23] To hold otherwise would be to create an unnecessary conflict among proximate provisions of the short will, and would run counter to Mr. Mott’s evident intention.

[24] Any doubt as to Mr. Mott’s intention in this regard is resolved by the heading of the portion of the will containing paragraphs 8-10, which reads “Distribution of Residue of My Estate”.

(b) Is the “Benjamin Mott Trust” the same Trust as the “Mott Trust”?

[25] The opening words of paragraph 11 direct Canada Trust “to hold the remainder of my property and assets in trust, to be called the ‘Benjamin Mott Trust’”. However, all but one of the other references to a trust in paragraph 11 describe it as the “Mott Trust”. The question then arises whether “Benjamin Mott Trust” and “Mott Trust” describe the same trust, or, rather, two distinct trusts.

[26] Except through the two names, there is no indication in the will that Mr. Mott intended in paragraph 11 to create two trusts, and there is every indication that he intended to create only one. First, the opening language of paragraph 11 introduces what is clearly contemplated as a single trust: “I direct Canada Trust to hold the remainder of my property and assets in a trust, to be called the “Benjamin Mott Trust”, on the following terms and conditions” [emphasis added]. Second, since the opening language of paragraph 11 refers to “terms and conditions” to follow (in sub-paragraphs (a) through (i)), the inconsistent references to the “Mott Trust” must be understood as relating to the trust, namely the “Benjamin Mott Trust”, introduced at the outset. Third, except when it creates through sub-paragraph (g) a separate capital fund called the “Benjamin Herbert and Louise Rebecca Mott Trust”, paragraph 11 refers throughout to a single fund with a single trustee who must apply a single formula to distribute income each year.

[27] I therefore agree with the petitioner’s undisputed position that the terms “Benjamin Mott Trust” and “Mott Trust” are used interchangeably in the will to describe a single trust.

2. Is All oR Part of the Disposition in Paragraph 11 Invalid by the Rule Against Inalienability?

The Issue

[28] It is common ground that, as will be discussed in more detail below, the trust created by paragraph 11 offends the rule against inalienability (at least in part) unless it (or part of it) falls within the exemption for charities. This is because under paragraph 11 the petitioner is to hold the capital of the trust in perpetuity. The question, then, is whether all or part of the trust is exempt from the rule because of the charitable nature of some of its gifts.

The Rule

[29] The “rule against inalienability” is, as is explained in Megarry & Wade, The Law of Real Property, 6th ed. (London: Sweet & Maxwell Limited, 2000) at 298-9, one of the several common law rules against perpetuities which limit the period for which a settlor can exercise control over property.

[30] Of these rules, perhaps best-known is the “modern rule against perpetuities”. It prohibits unduly remote indefeasible future interests, by requiring that any future interest in property, real or personal, vest within the perpetuity period of any life or lives in being together with a further twenty-one years. That rule is maintained, with additional detail and modification in the B.C. Perpetuity Act: see s. 6. The modern rule against perpetuities is sometimes said to prohibit the doing indirectly (by way of the creation of future interests) of what the rule against inalienability prohibits directly (see Saskatchewan, Law Reform Commission of Saskatchewan, Proposals Relating to the Rules Against Perpetuities and Accumulations (Saskatoon, 1987)).

[31] The rule against inalienability proceeds similarly from the “fundamental principle of English law that property must not be rendered inalienable”, and addresses more straightforward situations of direct restraint on alienation or restraints by way of perpetual trusts of which the terms prevent the beneficiaries dividing the property between them (see Megarry & Wade at 357).

[32] A trust is therefore void if it purports to render property inalienable. Megarry & Wade offer two such examples at 357:

… if a trust is employed, the donor’s intention may be that the capital shall be held indefinitely, or that some beneficial interest given to a club or other permanent institution shall continue indefinitely so that it is, in effect, inalienable.

[33] The rule prohibits restraint on alienation for any time longer than the perpetuity period. Professor Waters describes the rule and its origin thus, at 646:

In general a gift is void if its terms preclude the alienation of the capital of the fund or the alienation of land for a period which may last longer than the perpetuity period. The origins of this rule are also in doubt, but it is no doubt traceable to the common law doctrine that there may be no restraint on the alienability of a fee simple interest. Such a restraint is void ab initio, and when the courts found themselves faced with gifts, normally under trust, whose terms prevented capital or land from being alienated for a long period of time, their hostility to inalienability led them to think of some way in which this could be controlled. The period permitted for remoteness of vesting, namely, life in being and twenty-one years came readily to mind.

[Waters’ Law of Trusts in Canada, 3rd ed. (Toronto: ThomsonCarswell, 2005)]

[34] The rule against inalienability does not apply to charities. Megarry & Wade say, simply (at 362):

Charities are exempt from the rule against inalienability; no gift for charitable purposes is void merely because it renders property inalienable in perpetuity.

[35] As to trusts for charitable purposes. Professor Waters explains at 647:

Trusts for charitable purposes are wholly exempt from the rule against inalienability. As a consequence it does not matter whether the trustee can expend all the capital immediately upon the instrument of gift taking effect, whether capital is only to be used in support of income in some restricted fashion which will lengthen the life of the trust, or whether capital is to be indefinitely retained and only the income used for the described purposes.

The Positions of the Parties

[36] The petitioner’s primary position in this area is that the trust does not offend the rule against inalienability when its gifts are considered separately, because the gifts to the individuals do not tie up any part of the capital in perpetuity, and the gift to the Salvation Army, a charity, is exempt from the rule.

[37] I note parenthetically that it is common ground that the income gifts to the individuals do not fall within the scope of what the law in this area characterizes as charitable and that the income gifts to the Salvation Army do (see Commissioners for Special Purposes of the Income Tax v. Pemsel (1891), A.C. 531 (H.L.) at 583). For convenience, I will refer to the gifts to the individuals as “non-charitable”, but by doing so I refer only to the legal notion of “charitable”, and I do not impugn Mr. Mott’s generosity or his concern for the welfare of those to whom he made gifts under the will.

[38] The petitioner’s alternative position in this area is that in any event, as a whole the trust created by paragraph 11 is exempt from the rule because it evinces a general charitable intention that is not altered by the non-charitable lifetime gifts of income to three individuals.

[39] Mr. Elwick’s position in this area is that the rule must be considered in relation to the trust as a whole, and not separately in relation to each of its gifts, because paragraph 11 creates but a single trust. He submits that in its gifts and features, the trust is overwhelmingly non-charitable in nature (giving, during the lifetime of the individuals, a total of 11/12 of the income to be disposed to the individuals and only 1/12 to the Salvation Army), and that the exemption for charitable trusts is therefore not available.

Discussion

[40] The fact that the capital of the trust will never vest in the Salvation Army or any other charity does not deprive the trust of a charitable nature it would otherwise have. It is relatively common for the capital of a charitable trust to be vested both in interest and in possession in a trustee, and for the charitable beneficiary to receive only the income. This was the arrangement in Re McDonald (1979), 105 D.L.R. (3d) 681 (B.C.S.C.) in the will as construed by McEachern, C.J.S.C. (as he then was), who found no legal objection to it (at 682) (in response to the charities’ unsuccessful application for payment of the corpus of the residue):

The Royal Trust takes issue with the foregoing and maintains that it has been appointed executor and trustee, and that it is required to protect and preserve the residue, and to pay only the income from each share to the residuary beneficiaries.

It appears to me that there is no legal objection to the scheme directed by the trustee, and such a scheme seems to have been approved in Halifax School for Blind v. Chipman et al., [1937] 3 D.L.R. 9, [1937] S.C.R. 196 (S.C.C.); and in Re Galbraith, [1938] 4 D.L.R. 337, [1938] 3 W.W.R. 93.

[41] Some of the jurisprudence on which Mr. Elwick relies in this area requires that the testator have a paramount or general charitable intention if the trust is to be accepted as a charitable one. It is often said that a trust will not enjoy exemption from the rule against inalienability unless its objects are exclusively charitable (e.g. Waters’ at p. 750). However, such discussion typically relates to trusts in favour not of ascertainable legal entities, but of purposes. Where the purpose to benefit from the trust is exclusively charitable, the court will correct any inherent uncertainty in the object of the trust by supplying specific charitable purposes, in accord with the testator’s intention, so that the trust can be implemented (see Waters’ at 640-641).

[42] The trust in paragraph 11 is not a “purpose” trust: its objects, individuals and the charity are specific.

[43] I do not consider to affect this analysis any uncertainty that may exist as to the capacity in which the Salvation Army is to receive the gift, which I will discuss below. Whether the Salvation Army receives the gift to support its own charitable work or, rather, to in turn fund the charitable work of others, the gift is charitable in nature, as understood by the law relating to charitable trusts.

[44] The issue then is whether the gifts to individuals of substantial amounts of income during their lifetimes render the trust non-charitable in nature. For the following reasons, I conclude that they do not.

[45] I accept Mr. Elwick’s submission that paragraph 11 of the will expresses the clear intention to create a single trust, and not several distinct and independent sub-trusts as the petitioner appears to suggest. The trust is described and named as a single trust, the “Benjamin Mott Trust”. It receives the entire residue of the estate. A single trustee (the petitioner) is directed to apply a single formula (set out in paragraph 11(a)) to determine how much of the net income to distribute in any particular year and to whom.

[46] Although, within that single trust, the non-charitable gifts of income to individuals are substantial, their duration is extremely limited, particularly when contrasted with the perpetual and ever-increasing gift of income to the Salvation Army. As the non-charitable gifts end with the ends of the respective individuals’ lives, the Salvation Army’s gift increases and eventually amounts to the entirety of the income to be distributed.

[47] The situation is similar to that in Re Hiscock’s Estate (1987), 65 Nfld. & P.E.I.R. 218 (Nfld. S.C. (T.D.)). The court there found that gifts to individual relatives of the testator during their lifetimes of (in the aggregate) four-sixths of the annual income of the residue of the estate on trust, did not contaminate the testator’s overall charitable intent that was evident from his gift of the final sixth of the annual income (as well as the accumulated sixth added to principal each year) to the Church of England for charitable purposes: “[t]he life interests only postpone that portion of the income to the clearly designated charity” (at ¶36).

[48] The situation also has some similarity to that in Christ’s Hospital v. Granger (1848), 16 Sim. 83, 60 E.R. 804, aff’d (1849), 1 Mac. & G. 460, 41 E.R. 1343 (Eng. Ch.), where Shadwell V.C. held that successive gifts to two charities were not thereby removed from the charitable trust exemption from the rule against inalienability, at 650:

In this case there is a gift in trust for one charity, and, on the happening of a certain contingency, a gift in trust for another charity. There is no more perpetuity created by giving to two charities in that form than by giving to one. The evil meant to be guarded against by the rule against perpetuities is the making of property inalienable.

[49] Here also, the concerns about inalienability arise only in relation to a gift that is clearly charitable, albeit preceded by an earlier gift. The policy which motivates the law to exempt charities from the rule against inalienability applies no less to a charitable gift in perpetuity that follows on a lifetime non-charitable gift.

[50] For these reasons, I accept the petitioner’s alternative position in this area, and conclude that the trust in paragraph 11 is as a whole charitable, despite the non-charitable lifetime gifts of income to individuals. It is therefore unnecessary to decide whether, as the petitioner’s first position maintains, the rule against inalienability should be applied separately to each of the gifts in paragraph 11.

Conclusion

[51] No part of the disposition in paragraph 11 of the will is invalid as offending the rule against inalienability.

3. The Capacity in Which the Salvation Army is to Receive INCOME

[52] The petitioner asks whether under paragraph 11 the Salvation Army is to receive income to fund its own charitable activities or, rather, to create an endowment to support other charitable organizations in their work.

[53] Mr. Elwick submits that this uncertainty as to a key feature of the trust, together with other uncertain features, renders the trust invalid as a whole.

[54] The provisions for the gift to the Salvation Army appear in paragraphs 11(e) through (i):

(e) I direct Canada Trust to pay two and one half (2.5%) percent of the net income of the Trust each year to THE SALVATION ARMY KELOWNA COMMUNITY CHURCH at 1480 Sutherland Avenue, Kelowna, British Columbia, to be used to aid the worthy poor of Kelowna.

(f) Upon the death of any of the beneficiaries named in paragraphs 10(b) through (d), I direct Canada Trust to pay that person’s share of the net income of the Trust to THE SALVATION ARMY KELOWNA COMMUNITY CHURCH, Kelowna, British Columbia.

(g) I direct that, upon receipt of any amount hereunder from the Mott Trust, the Salvation Army Church shall create a designated capital fund called the “Benjamin Herbert and Louise Rebecca Mott Trust” and shall use such funds to support only those charities located within the Central Okanagan that have one or more of the following general purposes: [sic – punctuation]

(h) To be used to help, in the best judgment of the Salvation Army, those truly in need, particularly those in need through no fault of their own. My sympathies do not lie with drug addicts or alcoholics.

(i) I direct that the receipt of a person purporting to be an officer of the named charitable organizations shall be a sufficient discharge to Canada Trust.

[55] The capacity in which Mr. Mott intended the Salvation Army to receive is not entirely clear from the face of the will.

[56] That Mr. Mott intended a gift to fund the Salvation Army’s own operations is suggested by the language of sub-paragraph (h), which appears to contemplate a “hands on” role for the Salvation Army in the use of the funds. Also, the gift in sub-paragraph (e) of 2.5% of the net income to the Salvation Army Kelowna Community Church “to be used to aid the worthy poor of Kelowna” suggests the direct involvement of the Salvation Army in providing the charitable assistance.

[57] However, other aspects of the will suggest that Mr. Mott contemplated the Salvation Army using the gift to fund other charitable organizations. Sub-paragraph (g) requires the Salvation Army to “create a designated capital fund” in the name of Mr. Mott’s parents, a structure which may suggest a funding role. More significantly, sub-paragraph (g) requires the funds to be used to support “charities”, plural, thus indicating that Mr. Mott contemplated support for more organizations than the Salvation Army alone. Moreover, that sub-paragraph limits support to only those charities “located within the Central Okanagan that have one or more of the following general purposes”, thus suggesting selection according to the given criteria.

[58] If these latter features, which suggest that the Salvation Army is to hold a funding role, stood in harmony with the structure, grammar, and meaning of the will as a whole, I would conclude that Mr. Mott intended the Salvation Army to hold a funding role. However, they do not.

[59] The transition from sub-paragraph (g) to (h) is interrupted in its grammar and its content:

(g) … and shall use such funds to support only those charities located within the Central Okanagan that have one or more of the following general purposes: [sic – punctuation]

(h) To be used to help, in the best judgment of the Salvation Army, those truly in need ….

[emphasis added]

That this portion of the will suffers from an inept cut and paste process at some stage is betrayed not only by the mis-placed colon at the end of sub-paragraph (g), but also by the fact that sub-paragraph (h) provides at most one general purpose while sub-paragraph (g) clearly contemplates that several will follow.

[60] I therefore agree with the petitioner that either Mr. Mott gave little consideration to the capacity in which the Salvation Army is to receive or the will (perhaps through a process of re-drafting) does not consistently reflect his intent in this regard. Either way, his intent is unclear from the provisions that expressly describe the gift.

[61] However, what is clear is Mr. Mott’s confidence in and respect for, specifically, the Salvation Army and its work. This confidence is implicit in many of the provisions of paragraph 11 and, I accept, is confirmed through the affidavit evidence of Mr. Shaver that Mr. Mott was a great admirer of the Salvation Army’s work with the poor and considered both its personnel and its entire organization to be of unimpeachable integrity.

[62] It is clear from the will and the evidence that Mr. Mott intended to benefit the poor of Kelowna through, specifically, the Salvation Army. As I am asked, I take judicial notice of the fact that the Salvation Army is an operating charity whose work includes giving the charitable assistance Mr. Mott described in paragraph 11.

[63] I therefore conclude that the Salvation Army receives its gifts of income to fund its own charitable work. It follows that I do not find a fundamental uncertainty in the trust which renders it invalid.

4. IF the Direction to Accumulate Income OffendS the Rule Against Accumulations, should the court direct a cy-prỀs scheme?

The Issue

[64] Paragraph 11 of the will directs the petitioner as trustee to pay up to 60% of the annual income of the trust to, in combination, the three individuals over their lives and the Salvation Army in perpetuity. It thus implicitly directs an ongoing accumulation of at least 40% of the trust’s annual income and runs afoul of the rule against accumulations, as I will outline it below.

[65] The main issue in this area is whether as regards a portion of the trust reflecting the gift to the Salvation Army the court may exercise its cy-près jurisdiction to specify a scheme for the disposition of the “released income” (the at least 40% of income that would annually be accumulated under the invalid direction). If the court cannot properly do so, the released income passes to Mr. Mott’s intestate successors.

The Rule

[66] The rule against accumulations aims to prohibit “the building up of a sum by the process of investing each year at interest … and not making the resultant sum able to be withdrawn, either in whole or in part, at any time during the period of accumulation” (Waters’ at 658). Prof. Waters points out that, unlike the rule against inalienability, the rule against accumulation applies to charitable gifts as well as non-charitable gifts (at 658-659):

It may indeed by illogical that the law permits the capital of a charitable gift to be tied up indefinitely, while it does not allow the building up of capital for charitable purposes by way of accumulation of income. However, such is the law, save for Manitoba, in all the Canadian jurisdictions, as in England.

[67] The rule in British Columbia appears in s. 25(1) of the Perpetuity Act, which reads as follows:

25(1) If property is settled or disposed of in such manner that all or part of the income of it may or must be accumulated, the power or direction to accumulate that income is valid if the disposition of the accumulated income is or may be valid, but not otherwise.

[68] The rule in s. 25(1) cannot be understood in isolation. Its legislative history and its relationship to the rule against perpetuities inform its scope and its purport.

[69] The rule originated at common law, where accumulation was invalid unless limited to the perpetuity period of life in being. Then in 1800 the Accumulations Act (often called the Thellusson Act) responded to the famous will of Peter Thellusson by considerably reducing the length of the permissible period for accumulations.

[70] The Thellusson Act was part of the English law received into the Colony of British Columbia on November 19, 1858. Its substance was included as the Accumulations Restraint Act in the 1897 Consolidation of the provincial statutes as one of the English statutes that the commissioners considered to be in force in British Columbia: see Hayman Estate v. Gordon (2001), 16 C.P.C. (5th) 291, 2001 BCSC 1753 at ¶14. Its iteration in the Accumulations Restraint Act was updated by the Accumulations Act, 1967 to accord with English updates in 1925 and 1964. That, in turn, was repealed by the Perpetuities Act, S.B.C. 1975, c. 53 (renamed the Perpetuity Act, R.S.B.C. 1979, c. 321) and replaced with the provision that now appears as s. 25(1) of the Perpetuity Act, as quoted above.

[71] Section 25 rejects the approach in the Thellusson Act of creating specific periods, all shorter than the common law perpetuity period, within which accumulations were permitted. Prof. Maclean (The British Columbia Perpetuities Act -- A Primer, (1979) 13 U.B.C. L. Rev. 240, at p. 267) explains that instead:

[i]f, on the application of the rule as modified by the Act, the ultimate disposition of accumulated income is or may be valid, the duty or the direction to accumulate itself is valid. If therefore at the outset it is clear that the income to be accumulated can vest only within the perpetuity period the direction for accumulation is good. If it is unclear whether the vesting will or will not take place within the period then the normal remedial provisions [including the “wait and see” provisions] of the Act will be applied.

[72] The validity of an accumulation thus rests under s. 25(1) on whether, in the language of that subsection, “the disposition of the accumulated income is or may be valid”.

[73] “Disposition” is defined in s. 1 of the Perpetuity Act as follows:

"disposition" includes the conferring of a power of appointment and any provision by which an interest in property or a right, power or authority over property is disposed of, created or conferred and also includes a possibility of reverter or resulting trust and a right of re-entry on breach of a condition subsequent.

Discussion

Does the Direction Merely Preserve Capital?

[74] The petitioner asks the court to consider whether the provision in paragraph 11 for retention of at least 40% of the income of the trust amounts to a measure to preserve capital, rather than a direction to accumulate. Courts in England and Canada have recognized as outside the “mischief” addressed by the Thellusson Act directions which in substance seek to maintain the real value of trust capital against monetary inflation: see, for example, Chartered Trust Co. v. Robertson Estate, [1953] 2 S.C.R. 1; Megarry & Wade, supra at 371. The petitioner in fairness reminds the court that those and other similar authorities considered the application of the Thellusson Act, and not a provision such as in s. 25(1). The Thellusson Act and the current provisions which replaced it may have proceeded from different notions of what types of accumulation are objectionable, and the jurisprudence concerning capital preservation provisions therefore may not apply in the same way to situations where s. 25(1) is at play.

[75] That matter need not be decided in this case. Although, as the petitioner submits, Mr. Mott was undoubtedly motivated to ensure the continued real value of his trust, that was not his only concern: 40% of the trust’s annual income is always to be retained, even if inflation is low or non-existent. (I will say parenthetically that I accept the petitioner’s thoughtful submissions, which I will not detail here, as to Mr. Mott’s intent in the poorly-expressed paragraph 11(a) insofar as it requires comparison of 40% of the net income of the trust with “an amount equal to the rate of inflation”.)

[76] Read in the context of the will as a whole, the direction in paragraph 11(a) to retain at least 40% of the trust’s income discloses Mr. Mott’s intent to preserve the real capital value of the trust in perpetuity but also to ensure its steady growth through the aggregation of accumulated income to its corpus or capital. The direction is therefore not outside the scope of the rule as a mere provision to preserve capital.

Does the Direction Violate the Rule?

[77] Paragraph 11 provides for the annual disposition of up to 60% of the income of the trust, and thus by implication directs that 40% of the annual income be retained in the trust. The will makes no further provision in respect of the retained income and, as noted earlier, makes no disposition of the capital of the trust, which will thus enlarge as income accumulates.

[78] As noted earlier, by s. 25(1) of the Perpetuity Act, a direction to accumulate income is valid if the disposition of the accumulated income is or may be valid, but not otherwise.

[79] Paragraph 11 and the will as a whole do not provide for a “disposition” of the accumulated income. The definition in s. 1 of the Perpetuity Act, quoted above, is not exhaustive; however, nothing in paragraph 11 or the will as a whole is suggested to constitute a “disposition” of the accumulated income by a means other than those expressly listed in the definition. Under paragraph 11, income is to accumulate in perpetuity, and the accumulated income is to adhere to and form part of the capital fund in perpetuity.

[80] Since there is no “disposition” of the income which paragraph 11 directs the petitioner to accumulate, there is nothing to ground the only basis in s. 25(1) for the accumulation to be valid.

Is the Direction Valid as Regards the Lifetime Gifts to Individuals?

[81] The petitioner submits that the accumulation effected by paragraph 11(a) is invalid as regards the gift to the Salvation Army but valid as regards the gift to the individuals, in relation to whom the accumulation endures no longer than the perpetuity period.

[82] However, I am unable to accept the petitioner’s submission that the validity of the accumulation may be considered separately in relation to the gifts to the individuals, on the one hand, and the gift to the Salvation Army, on the other.

[83] The petitioner relies on Re Burns (1960), 25 D.L.R. (2d) 427 (Alta. S.C. (A.D)) to support its submission that the accumulation directed in paragraph 11(a) of the will should be analyzed separately as regards the individuals and the Salvation Army. However, in Re Burns, the separate analysis applied at a different stage. In Re Burns, the court considered the validity of a direction to accumulate after it had run its course and (because of the survival of the testator’s son’s widow) proven itself invalid; the question then was whether the provisions in the will for division of the residue were sufficient to pass the funds released from the invalid accumulation.

[84] The testator in Re Burns had directed his trustees to use 60% of the income of his residuary estate for certain bequests and annuities, including for his son’s widow, and to accumulate 40% of the income. The trustees were to distribute the residuary estate, including the accumulated income, on the death of the last annuitant or the son’s widow; certain named beneficiaries were to receive in total 67% of the residuary estate, and the remaining 33% of the residuary estate was to create a memorial trust with the annual income payable to certain named charities. The son’s widow survived all the annuitants and was still alive when the twenty-one-year period under the Accumulations Act (the Thellusson Act) expired. The Accumulations Act therefore invalidated the accumulation of residuary income after twenty-one years from the testator’s death.

[85] The question then was essentially whether the gift of residue in the will provided for the distribution of the invalidly accumulated funds. The court held that the creation of a memorial trust with 33% of the residue with gifts of income to named charities disclosed a general charitable intention that enabled the court to exercise its cy-près jurisdiction to include the released (accumulated) funds within the gift. But there was no basis in the will or otherwise in law by which funds released from the invalid accumulation could pass to the named individuals through the gift of the other 67% of the residue; that portion therefore went as on an intestacy.

[86] A separate analysis as between the individuals (as to 67%) and the charitable trust (as to 33%) thus followed after the determination that the direction to accumulate was invalid. It simply reflected the fact that the gift of residue was so divided, and asked whether the released funds fell within that gift or could be brought into it through the court’s cy-près jurisdiction. The separate analysis did not apply to the determination as to whether or not the accumulation itself was valid.

[87] Paragraph 11(a) makes a single direction to accumulate income. It does not make one such direction to benefit the individuals and another such direction to benefit the Salvation Army. Rather, the single direction governs the administration of the capital fund from which the income is drawn for the gifts to each of the individuals and the Salvation Army.

[88] That the income gifts will enlarge as the capital fund increases by accumulation does not, in my view, affect this analysis. The perceived mischief underlying the rule against accumulations is not that a donee will benefit from an accumulation; rather, it is that property (in an ever-increasing amount) is removed from circulation for a longer period than social policy (previously as expressed by reference to the perpetuity period, and now as described in s. 25(1)) will accept.

[89] The petitioner’s submission that the direction to accumulate is valid as regards the named individuals faces an additional hurdle. The petitioner submits that that direction must be valid because it will necessarily endure no longer than the perpetuity period. But this submission faces the difficulty that the “saving” aspect of s. 25(1) of the Perpetuity Act operates by reference not only, implicitly, to the perpetuity period, but also requires that there be a “disposition” of the accumulated income that is or may be valid. Even if, for the purposes of the present analysis, the gifts of income to the individuals are viewed separately from the gift to the Salvation Army, paragraph 11(a) of the will nonetheless provides for no such “disposition”.

[90] The petitioner appears to suggest that dispositions are found at the ends of the lifetime income gifts: its written submissions suggest that “[t]o the extent that it benefits the individuals, the accumulation will end within twenty-one years of the death of lives in being when the accumulation started, and it will then be transferred to the benefit of the charity” [emphasis added]. However, in my view there is no “transfer” of the accumulation on the death of any of the individuals; rather, the accumulation continues and the Salvation Army’s proportionate share of the income to be distributed increases.

[91] That the capital fund increases (because of accumulations), and that therefore the dollar value of a percentage share of income on that fund increases, does not in my view create such an identifiable benefit to the recipient as to alter this analysis.

[92] For these reasons, I am not persuaded that the direction to accumulate may be valid under s. 25(1) as regards the gifts to the individuals, even if invalid as regards the gift to the Salvation Army.

May the Court Apply the Released Funds Cy-Près?

[93] The question then is whether the “released” income goes as on an intestacy, or, rather, may be the subject of a court-directed scheme to benefit the charitable trust.

[94] The court has a cy-près jurisdiction to design the “next best thing” to carry out the donor or settlor’s intention, where the indicated method fails. In Eastwell Estate (Re), [1980] O.J. No. 106 (H.C.J.), Lerner J. at ¶11 quoted as follows Orde J.’s description of the doctrine in Sheppard v. Bradshaw (1921), 50 O.L.R. 626:

That doctrine is, speaking broadly, one which enables the court to carry out the general intention of the donor or settlor of a fund when the particular method of carrying out which is indicated by the instrument, fails, or the instrument fails to, or does not fully, indicate the method of fulfilling the general intention ... In such cases the court moulds the trust as nearly as possible to the intention of the settlor.

[95] The court may exercise its cy-près jurisdiction in relation to trust income released from an invalid direction to accumulate where there is a general charitable intention to the trust. The authors in Morris & Leach, The Rule Against Perpetuities, 2nd ed. (London: Stevens & Sons, 1962) at 299 explain:

If property is given on charitable trusts, with an invalid direction to accumulate surplus income, and there is a general charitable intention, the direction to accumulate is treated as a mere administrative direction which can be disregarded, so that surplus income does not go to the residuary legatees or next-of-kin but is applicable cy-près.

[96] Prof. Waters at 658-659 explains similarly that the cy-près jurisdiction is available to ensure that the income released by the application of the rule against accumulations is nonetheless used for charitable purposes.

[97] Picarda in The Law and Practice Relating to Charities, 3rd.ed. (London: Butterworths, 1999) at 321 describes thus the threshold requirement of a general or paramount intention:

… The adjective ‘general’ in this context is somewhat obscure in meaning, while the adjective ‘paramount’ conveys perhaps a better idea of what is required by way of charitable intention to save an initially impossible gift. It avoids the notion that the requisite intention must be unqualified in any way or confined only to some general head of charity.

The classic statement of the law on this topic is to be found in the judgment of Parker J. in Re Wilson [[1913] 1 Ch. 314], where he divided the cases into two categories:

‘First of all, we have a class of cases where, in form, the gift is given for a particular charitable purpose, but it is possible, taking the will as a whole, to say that, notwithstanding the form of the gift, the paramount intention, according to the true construction of the will, is to give the property in the first instance for a general charitable purpose rather than a particular charitable purpose, and to graft on to the general gift a direction as to the desires or intentions of the testator as to the manner in which the general gift is to be carried into effect. In that case, though it is impossible to carry out the precise directions, on ordinary principles the gift for the general charitable purposes will remain and be perfectly good, and the court, by virtue of its administrative jurisdiction, can direct a scheme as to how it is to be carried out. In fact, the will will be read as thought the particular direction had not been in the will at all, but as thought there had been simply a general direction as to the application of the fund for the general charitable purpose in question.

Then there is the second class of cases, where, on the true construction of the will, no such paramount general intention can be inferred, and where the gift, being in form a particular gift -- a gift for a particular purpose -- and it being impossible to carry out that particular purpose, the whole gift is held to fail.’

[98] See also Tudor on Charities, 9th ed. (London: Sweet & Maxwell, 2003) at 452-460.

[99] Mr. Mott’s charitable intention was not a general or paramount intention to give to charity at large or to a charitable purpose; it was an intention to give to a specific charitable entity. This is thus not a case where a general or paramount intention to give to charity cannot be fulfilled by the terms of the will as, for example, where the named beneficiary no longer exists, and a cy-près substitute may be named to achieve the testator’s general charitable intention. For his charitable gifts, Mr. Mott named a particular known entity which is willing and able to carry out his intention. The “released income” here in issue is born of the invalid direction to accumulate income coupled with the failure to dispose of the capital of the trust; it does not result from any inability of the specifically-named donee to achieve a more general charitable purpose.

[100] Nor is this a case such as in Re Stillman Estate (2003), 68 O.R. (3d) 777 (Sup. Ct. ), on which the petitioner relies in support of its proposed scheme, where years into the administration of a charitable trust its management as the testator directed became impracticable. Cullity J. there discussed in interesting detail whether cy-près orders are confined to cases where there has been a failure of the objects or purposes of a charitable trust, as distinct from a failure or breakdown of the mode or manner of benefiting them, designated by the donor. He concluded that (at ¶33):

Where the directions of the donor have become impracticable, as here, I do not think it matters whether they are to be characterized as relating to the purposes of the Trust or merely to the mode by which they are to be achieved. The jurisdiction to substitute other directions will exist in either case and in each case the court will fashion a scheme that will as nearly as possible reflect the intentions of the donor. …

[101] Cullity J. found that over the years the administration of the trust had become impracticable, because the will did not allow the trustee to encroach on capital and the trust, registered as a foundation, could not meet the applicable disbursement quota. He therefore made a cy-près order authorizing a total return investment policy, based on the return on income and capital gains without distinguishing between them.

[102] The difficulty with the Mott trust is not one of impracticability; it is one of invalidity, of the direction to accumulate.

[103] I cannot conclude that paragraph 11 or the will as a whole express a general or paramount charitable intention to benefit at large the poor of Kelowna that would allow the court to apply cy-près the funds released from the invalid accumulation. I note parenthetically that a general or paramount intention is different in this context than in the context, discussed earlier, of measuring whether the trust created by paragraph 11 is as a whole charitable despite its non-charitable gifts to individuals.

[104] In short, insofar as Mr. Mott intended the trust to directly and the accumulation to indirectly benefit the poor of Kelowna, that intent was to be achieved through his gifts of income to, specifically, the Kelowna Salvation Army. There is no indication that he held a broader intent to benefit the poor of Kelowna to which his gifts to the Salvation Army were secondary or subordinate.

[105] I therefore do not find a basis for the exercise of the court’s cy-près jurisdiction in relation to the funds “released” from the invalid accumulation.

The Cy-Près Scheme Proposed by the Petitioner

[106] It is unnecessary to address the particular scheme proposed by the petitioner, but I will make some brief comments.

[107] The petitioner proposes that in place of the single trust created by paragraph 11 the court direct the creation of four trusts for the benefit of, respectively, the three named individuals and the Salvation Army. Each of the four trusts would have as its corpus a percentage of the total capital of all four trusts equivalent to the percentage entitlement to annual income to be received by the beneficiary of the particular trust according to paragraph 11. Each beneficiary would receive up to 40% (subject to inflation) of the annual income of his trust, the remaining 60% accumulating as part of the capital of that trust; the Salvation Army would receive the entire annual income of its trust. Thus, the trusts for the individuals would involve income accumulations (in the appropriate proportions), while the trust for the Salvation Army would not. On the death of an individual beneficiary, the capital of that individual’s trust would be added to the capital of the trust for the Salvation Army.

[108] Even were there a basis for the court to exercise its cy-près jurisdiction, the scheme proposed by the petitioner would in my view restructure the trust created by paragraph 11 of the will in a fashion beyond the proper scope of that jurisdiction.

[109] Mr. Mott’s intention to benefit the named individuals for their lifetimes and, ultimately, the Salvation Army in perpetuity is clear. So is his intention to do so by way of a single trust. The only failure, in law, of the chosen method or legal structure by which his gifts are to be made is the direction to accumulate a large portion of the income of the trust; there is no failure in the trust itself.

[110] If the court’s cy-près jurisdiction were to arise, in this case it would do so in relation to the income “released” from the invalid direction to accumulate. There is no defect in the underlying trust that requires the court’s intervention.

[111] The petitioner’s proposed scheme includes carefully considered details for the effective management of the trusts and to provide tax advantages to the beneficiaries. Some of the proposed details, such as those to allow the individual beneficiaries to purchase insured annuities would, in my view, to take the court well beyond the proper scope of its cy-près jurisdiction and would have the court design or approve significant modifications or, arguably, enhancements to the scheme the testator directed.

Conclusion

[112] My conclusions in this area are therefore as follows:

(a) The invalid direction to accumulate at least 40% of the net income of the trust should be replaced by a direction to retain only such income as is necessary to maintain the capital value of the trust assets.

(b) In that regard, the petitioner’s proposal for measuring the real value of the capital of the trust is approved.

(c) The remaining annual income should be distributed in the percentage shares indicated in paragraph 11, with the intestate successors receiving the percentage share (that is, 40%, subject to (a) and (b) above) that corresponds to the income released from the invalid direction to accumulate.

(d) As submitted by the petitioner, income payments to the Salvation Army are to be to “the Governing Council of the Salvation Army in Canada”, as a result of s. 2(1) of An Act Respecting “The Salvation Army”, S.B.C. 1910, c. 77.

(e) The reference in paragraph 11(f) of the will to “paragraphs 10(b) through (d)” are, as the petitioner suggests, an obvious slip and should be corrected to “paragraphs 11(b) through (d)”.

SUMMARY OF CONCLUSIONS

[113] For the reasons given above, I have reached the following conclusions:

1. (a) properly construed in its larger context, paragraph 8 of the will appoints Canada Trust as trustee of the residue of the estate.

(b) the “Benjamin Mott Trust” is the same trust as the “Mott Trust”.

2. The trust in paragraph 11 is not invalid by the rule against inalienability of property because the trust is as a whole charitable.

3. The Salvation Army is to receive its gifts under the will to fund its own charitable activities.

4. The direction to accumulate at least 40% of the trust’s annual income in perpetuity is invalid as offending the rule against accumulations in s. 25(1) of the Perpetuity Act. The circumstances do not support the exercise of the court’s jurisdiction to direct a scheme to apply cy-près the funds released from the invalid accumulation. Instead:

(b) In that regard, the petitioner’s proposal for measuring the real value of the capital of the trust is approved.

(d) Income payments to the Salvation Army are to be to “the Governing Council of the Salvation Army in Canada”.

(e) The reference in paragraph 11(f) of the will to “paragraphs 10(b) through (d)” should be corrected to “paragraphs 11(b) through (d)”.

[114] All the parties represented at the hearing of the petition are entitled to payment of their reasonable costs and expenses of and incidental to this application.

“H.J. Holmes, J.”
The Honourable Madam Justice H.J. Holmes

APPENDIX “A”

Paragraph 11

I direct Canada Trust to hold the remainder of my property and assets in a trust, to be called the “Benjamin Mott Trust”, on the following terms and conditions:

(a) I direct Canada Trust to retain in the Mott Trust each year forty (40%) percent of the net income of the Mott Trust, or an amount equal to the rate of inflation, whichever is greater. If the rate of inflation is higher than forty (40%) percent of the net income of the Mott Trust in any particular year, Canada Trust shall deduct the additional amount from the shares of the beneficiaries named below in proportion with their respective shares of the Trust.

(b) I direct Canada Trust to pay thirty-five (35%) percent of the net income of the Mott Trust each year to [Gerald Thomas Shaver], if he survives me, while he is alive.

(c) I direct Canada Trust to pay twenty (20%) percent of the net income of the Mott Trust each year to AUBREY R. KETCH (“Aubrey”) of Winfield, British Columbia while he is alive. If Aubrey does not survive me or upon Aubrey’s death, I direct Canada Trust to pay his share of the net income of the “Benjamin Mott Trust” each year to his wife, BARBARA KETCH, while she is alive.

(d) I direct Canada Trust to pay two and one half (2.5%) percent of the net income of the Trust each year to MAX ZANDER of Kelowna, British Columbia, if he survived me, while he is alive.

(i) I direct that the receipt of a person purporting to be an officer of the named charitable organizations shall be a sufficient discharge to Canada Trust.

Citation:	*The Canada Trust Company v. Shaver,*
	2007 BCSC 54